Pension saving: The key to achieving ‘higher returns’ and putting retirement fears to rest | Personal Finance | Finance

For many, approaching retirement can be a very exciting and rewarding time but financially, it can often be a daunting prospect. However, there are steps people can take if they are concerned about the state of their pension pots.

Not having a big enough pension pot to retire with is one of the biggest financial fears in the UK, with 17 percent of Britons worried about not having sufficient retirement savings, according to debt management company Lowell.

With the state pension not enough to live on for the average retiree, and the minimum contribution levels of auto-enrolment not able to provide a big enough private pension pot, it is crucial Britons make the effort to put money away to fund their retirement.

James Norton, head of financial planners at Vanguard, spoke exclusively to, offering his advice to help people accumulate enough retirement savings and ease their pension worries.

He said: “Pensions can be complicated – not only do you need to work out how much to save, but also where to invest it and how to withdraw the funds from your pensions once you retire. The key to success is to start early, plan ahead and invest sensibly.”

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Mr Norton continued: “Although we tend to earn and save more financial capital as we get older, the reality is that as we approach retirement, we can afford to take less risk. When our pensions are at their highest value, we can ill afford to suffer large losses.

“In practical terms, this means investing, when younger, in a portfolio of mainly shares, say around 70 percent to 100 percent, with the balance in bonds to maintain diversification.

“Once you get into your 40s, when research suggests we hit peak earnings growth, the shares element can start to gradually reduce to reach around 50 percent at retirement.

“Vanguard favours a holistic approach to investing for retirement, which is often called ‘total-return investing’. This means harnessing capital gains as well as dividends and interest to generate a retirement income.”

Mr Norton laid out the potential benefits of a well-rounded investment strategy for retirement:

Better diversification

“Because you are not seeking a narrow range of high-income investments, your choice is much wider. You will find it easier to maintain the diversification of your portfolio and hence avoid unnecessary risks. This means that investors should buy companies from around the world, not just the UK.”

More control over income

“The problem for a retiree pegging their income to dividends and/or interest is that they cannot rely on it. In the second quarter of 2020, for instance, the global pandemic saw UK companies cut dividend payments by more than a half. Retirees’ incomes will inevitably have suffered.”

Improved resilience

“Taken together, the benefits of total-return investing should make your portfolio better able to weather storms and see out the rest of your days.”

Mr Norton concluded: “Following a few ground rules like these will take much of the pain out of investing for retirement. But the most vital ingredient is maintaining the discipline to stay the course and stick with your long-term investment strategy.

“In essence, plan ahead, start saving early and set a realistic target. If you can keep to the path you have set, a comfortable retirement is an attainable prospect.”

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